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Factors to Consider Ahead of Keysight's (KEYS) Q2 Earnings

Zacks Equity Research

Keysight Technologies Inc. KEYS is scheduled to release second-quarter fiscal 2019 results on May 29. Notably, the company has surpassed earnings estimates in three of the trailing four quarters, with an average beat of 9.9%.

Past-Quarter Performance

Keysight delivered first-quarter fiscal 2019 non-GAAP earnings of 93 cents per share beating the Zacks Consensus Estimate by 14 cents. Further, the figure soared 82.4% from the year-ago quarter.

Non-GAAP revenues increased 18% year over year to $1.009 billion. Non-GAAP core revenues increased 20% year over year to $1.018 billion. Meanwhile, GAAP revenues advanced 20% from the year-ago quarter to $1.006 billion. The Zacks Consensus Estimate for revenues is pegged at $978 million.

What to Expect in Q2?

For the second-quarter of fiscal 2019, the company expects GAAP revenues to be in the range of $1.057-$1.077 billion. Meanwhile, non-GAAP revenues are expected in the band of $1.06-$1.08 billion.

Non-GAAP earnings per share are projected in the range of 93-99 cents per share.

The Zacks Consensus Estimate for revenues is pegged at $1.07 billion, indicating an improvement of approximately 8.6% from the year-ago quarter.

We note that the Zacks Consensus Estimate for earnings has remained unchanged in the past week. The Zacks Consensus Estimate for the quarter under review is pegged at 98 cents per share, suggesting growth of around 18.1% from the year-ago reported figure.

Notably, Keysight stock has returned 38.3% in the past year, outperforming the industry’s rally of 24.9%.

Factors at Play

Keysight’s focus on launching new solutions for growth markets like 5G, IoT, next-generation wireless, high-speed datacenters and automotive & energy is expected to positively impact the top line in the to-be-reported quarter.

Management is also optimistic about capitalizing on key growth segments of a number of end markets. Notably, robust demand and higher investments in emerging technologies is expected to aid markets such as solutions and commercial communications, aerospace, defense and services in the second quarter. These factors in turn will aid the upcoming quarterly results.

Strength in Keysight’s comprehensive test and measurement solutions bodes well. In the last reported quarter, Keysight’s 5G solutions witnessed adoption from Softbank, SK Telecom, China Telecom, to name a few.

Notably, Keysight stated that orders for 5G solutions recorded double-digit growth year over year for the quarter under review. Acquisition of Ixia, in particular, is enabling the company to unveil new offerings in 5G domain, including the latest 5G User Equipment Emulation scalable solution. This buyout is anticipated to bolster the top line in the to-be reported quarter.

Moreover, rapid adoption of the company’s high-speed Ethernet based testing solutions, and security and application solutions are anticipated to bolster Ixia Solutions Group (ISG) segment revenues.

The new collaborations with AT&T, Xilinx, among others on development of Open RAN 5G network are likely to enable the company in expanding presence in 5G. Alliance with Qualcomm Technologies, Inc., a subsidiary of Qualcomm (QCOM),  remains notable. These deals will help the to-be-reported quarter results.

We believe that the company's focus on expanding software portfolio on the back of strong demand for its solutions is likely to fuel growth.

However, management had expected softness in semiconductor market, given the uncertain macroeconomic conditions and imposition of tariff owing to trade war between the United States and China. Notably, the company anticipates semiconductor domain to remain a concern through 2019.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Keysighthas a Zacks Rank #3 and an Earnings ESP of 0.00%. This combination makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Dollar General Corporation DG has an Earnings ESP of +2.13% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuit Inc. INTU has an Earnings ESP of +73.68% and a Zacks Rank #2.

Costco Wholesale Corporation COST has an Earnings ESP of +2.10% and a Zacks Rank #3.

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